What Was the Real Story with the Revlon S/4HANA Failure?

Executive Summary

  • Revlon failed at a S/4HANA implementation back in Feb of 2017 and this failure came to light in a quarterly call in March of 2019.
  • We cover this failed S/4HANA case study.

Introduction

We have been warning people about S/4HANA’s implementation problems for several years now. We covered this in the article Why Did SAP Fake S/4HANA Maturity So Aggressively? and explaining how both SAP and consulting firms have greatly misrepresented S/4HANA’s maturity. We covered this in the article Analysis of Mark Chalfen’s Article on S/4HANA Maturity

How S/4HANA Operationally and Financially Damaged Revlon

Notice this quote from Revlon’s Q4 2018 call (which occurred in May of 2019).

As highlighted previously, the company has identified a material weakness in it’s internal controls, primarily related to the lack of design and makings of effective controls in connection with the implementation of its new SAP ERP system in the U.S. We have already developed and begun to implement a remediation plan to address this finding and we’ll continue to enhance our internal control environment as we move forward. The company expects that this matter will not result in any changes to its financial results.”

The company’s problems with the ERP system surfaced shortly after Revlon launched S/4HANA in February 2017.

The 2017 Statement from Revlon About the S/4HANA Implementation

Such systems are designed to integrate everything from a company’s inventory of manufacturing goods to its customer relationships. In its annual report for fiscal year 2017, Revlon revealed the difficulties at its Oxford, North Carolina, manufacturing facility:

“[T]he Company launched the new ERP system in the U.S., which caused its Oxford, N.C. manufacturing facility to experience service level disruptions that have impacted the Company’s ability to manufacture certain quantities of finished goods and fulfill shipments to several large retail customers in the U.S. The Company cannot provide assurances that it will remedy the ERP systems issues in time to fully recover these sales and/or that the ERP implementation will not continue to disrupt the Company’s operations and its ability to fulfill customer orders.”

The disruptions have continued, apparently, and Revlon’s warning a year ago has come true:

“To the extent that these disruptions occur in larger magnitudes or continue to persist over time, it could negatively impact the Company’s competitive position and its relationships with its customers and thus could have a material adverse effect on the Company’s business, prospects, results of operations, financial condition and/or cash flows.”

The Remediation Plan?

I am not sure what the remediation plan will be for S/4HANA, but any ERP system that has been taken live that is running the business in production will cause large issues across that business. According to the quotes from ComputerWeekly.

“She attributed $54m of direct cost to remediating the SAP disruption.”

Most likely the actual number will end up being a good deal higher than this. Budgets for such remediation nearly always underestimate the total costs.

However, Revlon also stated the following.

“There is not a plan for future implementations at this point.”

This sounds like the project has failed. And this caused investors to note an inconsistency.

“According to the class action lawsuit, the company made false or misleading statements and failed to disclose the extent of its issues with the SAP implementation.”

How Revlon Could Have Avoided from the S/4HANA Failure

It turns out very easily.

We will cover something about this story that the mainline IT media entities, consulting firms and IT analysts will not touch — and the reason being that nearly every entity that reports on SAP, is also financially connected to SAP. And they do not declare their financial connections to SAP, appearing to be independent.

  • Revlon could have stayed entirely out of this by not listening to their consulting firm.
  • This software was implemented back in 2017 so the project would have begun in 2016. This was a timeframe when the chance of taking S/4HANA live in a production setting would have been close to zero. However, Revlon was encouraged to implement this software by both SAP and the consulting partner. Since S/4HANA was first introduced, there has been every attempt by SAP and the consulting ecosystem to hide the maturity of S/4HANA from potential customers — as we covered in the article Why Did SAP Fake S/4HANA Maturity So Aggressively?

Let us review a sample of the public statements around S/4HANA by some of the largest SAP implementation firms.

Getting Inaccurate Information About S/4HANA from SAP Consulting Firm’s Website

The Deloitte Website on S/4HANA

The material on Deloitte’s website, as is the material on all of the major SAP consulting companies websites leaves out the question of maturity.

Consulting companies want S/4HANA implementations, and this causes them to entirely leave out the maturity of the application. Other claims untethered to the maturity of S/4HANA also are highly dubious.

Let us look at two examples:

  • S/4HANA “is at the center of many major digital transformations projects today.” In terms of the number of ongoing projects, it depends on what “many means” but it is not being widely implemented. Secondly, the number of S/4HANA projects that go live is very low. Is the success of the system measured by how many projects are ongoing (and billing hours) or what percentage go live? For Deloitte, the measure is naturally the number billing.
  • How is S/4HANA a “game-changer” if it has no new functionality over ECC, its performance is not very good due to the mismatch between HANA and TP, and Fiori is rarely implemented?

The CapGemini Website

Many of the statements by the SAP consulting firms around S/4HANA are non-sensical. Companies that implement S/4HANA are replacing previous legacy or ERP systems, they are not moving from paper to digital, and are therefore not “digitizing” their business. The digitization process for the vast majority of companies that can afford a CapGemini implementation of S/4HANA would have most likely occurred in the 1970s or 1980s. 

We covered the illogical term of digital transformation in the article The Problem with the Term Digital Transformation.

In working with several SAP consulting firms and reviewing the material of others, it is clear that they have little interest in either knowing or communicating the maturity issues with S/4HANA. This is reminiscent of a quote from Dave McComb’s book Software Wasteland.

One of the main problems with our industry is that there is far more money to be made by being incompetent than there is for being competent. There are still far too many contractors who make far more money not implementing systems that there are contractors that can implement productively.

Dave McComb’s analysis is that consulting companies may even prefer if the applications they implement are immature. They are paid hourly, so whether the project actually goes live, does not matter. If they can get the project sold, then they can get paid even more as the innumerable problems requires the client to keep the consulting company around even longer. And this translates to more billing hours.

The consulting companies have some maturity issues they would like to hide from you. This is why they can’t be listened to — the only thing they look out for is their interests. They are happy to recommend inappropriate applications and to create miniature disasters within their clients, as long as they can get their financial needs met. 

SAP’s Inaccurate Messaging on S/4HANA as Communicated in SAP Videos

Fact-Checking SAP Information on S/4HANA

This video is filled with extensive falsehoods. We will address them in the sequence they are stated in this video.

SAP Video Accuracy Mesurement

Appleby's StatementAccuracy % of the CommentExplanationLink to Analysis Article
S/4HANA is what allows key processes to be digitized.
0%
ECC was already fully digitized and digitized across key business functions.The Problem with Using the Term Digital Transformation on IT Projects
HANA is a Platform
0%
HANA is not a platform, it is a database.How to Deflect You Were Wrong About HANA
Fiori is a major advantage for S/4HANA.
10%
In S/4HANA implementations Fiori is infrequently used when S/4HANA. How Accurate Was SAP on the Number of Fiori Apps?
Fiori is far more efficient than what came before.
10%
In testing Fiori and S/4HANA, Sven Deneken's statements did not hold up. There was a particular weakness in actually making changes after noticing something needed to be changed, and we found the efficiency below that of ECC with of course SAPGUI.
S/4HANA is innovative as it brings "real time inventory."
0%
Sven Deneken brings up the topic of "real-time capabilities," however there is nothing particularly real-time or different in terms of a reaction than ECC. Whenever you make a change in ECC or any other ERP systems for that matter, the entry is real-time. Sven Deneken states that "the physical inventory is the same as the digital inventory." However, under what system would this not be true?What Happened to the Term Perpetual Inventory?
S/4HANA is innovative because it allows access to supplier information.
0%
Sven Deneken states that information about the supplier is "just a fingertip away." Sven Deneken may be familiar with ECC, where supplier data is also a fingertip, or say mouse click away. It called the Vendor Master in ECC.
Sven Deneken says that the cycle could be changed to daily or sub-daily.
0%
Why would that occur? This is a very strange scenario that is being laid out.
S/4HANA is innovative because it allows MRP to be rerun interactively for a product location.
0%
Sven Deneken is extremely confused when he states that S/4HANA allows a fresh MRP run to be performed for a specific product location and that this is a differentiator for S/4HANA. For a single product location, there is no ERP system that cannot run MRP for a single location. Secondly re-running MRP does not remove uncertainties. MRP can be re-run when something changes. For example, when the forecast changes.Performance Problems with HANA and MRP
Sven Deneken states this demo shows SAP has reimagined inventory management.
0%
However, all of this functionality, save for several of the graphics shown in the video have already been available in ECC for many years, in fact, decades.

The Concept of Truth-Telling in SAP and Consulting Firms: Catch Us if You Can!

The major SAP consulting companies have never shown concern for S/4HANA’s immaturity and began promotion S/4HANA as ready for implementation as soon as S/4HANA was introduced back in Feb 2015. At this time, only S/4HANA Finance, or the finance module (aka FI/CO) was available to be implemented. And SAP consulting companies pressed their clients to upgrade to just the finance module without the rest of the ERP system anyway.

If you talk to senior members of consulting firms in private (as I have) they will not acknowledge any responsibility except to maximize the revenues of the consulting companies. The approach is that they present whatever they want, and it is the buyer’s responsibility to do their own research to fact check the consulting firm.

If we look at the legal defense of WiPro versus National Grid, WiPro stated that while the references they provided were fake, it was the responsibility of National Grid to check them. WiPro had no responsibility to provide accurate references, as we covered in the article How to Understand Wipro’s Position on Lying.

The Problems with Financial Bias in the S/4HANA Decision

  • Financial Bias: Revlon, on the basis of financially biased information, and perhaps financial bias within IT implemented an ERP system with the highest level of risk associated with it of any ERP system that we track.
  • Financial Bias of IT and Consulting Firms: The financial bias of SAP consulting companies is indisputable, but IT departments can appear to act as agents of vendors than of the company’s they “work for.” This can be due to the revolving door of senior decision-makers between implementing companies and consulting firms, and the idea that implementing or overseeing the implementation of the most recent SAP applications is good for their career.
  • The Established Pattern with S/4HANA Implementations: The Revlon failure fits into a long term pattern of S/4HANA project failures being suppressed. This is covered in the article How S/4HANA Cost Overruns and Failures are Suppressed?

Revlon’s Failure with S/4HANA Had “Nothing to do with S/4HANA’s Maturity?”

Several commenters who specialize in ERP failure analysis have stated that Revlon’s problems with S/4HANA had nothing to do with S/4HANA’s maturity issues.

As we are the only entity that we are aware of that honestly tracks S/4HANA maturity (see our critique of ASUG’s coverage in How Accurate Was ASUG on its S/HANA Poll?), and as these individuals do not work on S/4HANA implementations, its difficult to see how they would know this. It is virtually impossible to find any industry commenters who will point out the maturity of products that fail, as they look to vendors for payment or for promotion. Therefore, without performing any research they will offer the view that the application is solid.

The previous version of S/4HANA, ECC, was mature — but this says nothing about S/4HANA. S/4HANA made many changes, particularly to the technical backdrop of the application that greatly reduced its implement-ability.

This is not to say that Revlon’s management of the implementation was not problematic (we don’t know if was or wasn’t), or if the implementation company did a poor job (they normally do), but if the product itself is not ready to be implemented, it is nonsensical to remove this issue from consideration as a prime contributor to the failure.

The S/4HANA Market is Filled with Entities Providing False Information About S/4HANA Readiness for Implementation

Virtually every SAP consultant that publishes or comments underestimates the difficulty with implementing S/4HANA and misrepresents S/4HANA to prospects. We have brought up the point of whether these consulting companies are implementing projects that they know will fail, or have the highest probability of failure, but simply don’t care. We covered this in the article Is it Right to Lead Clients into SAP Software Failure?

If you are a customer interested in implementing S/4HANA and want the worst possible advice, don’t forget to check our SAP Deception and Corruption Quadrant. Any of these firms will lie to you about S/4HANA, but they are all SAP Certified partners, so they are your approved sources, and you can choose from any of them. All of them will rob you. But there is a choice. As my previous clients have said..

“we know the consulting firm is lying to us, but they have been recommended to us by SAP.”

There are so many characters like “Grima Wormtongue” consulting firms providing false information its necessary for a Gandalf type figure to bring technical accuracy and reality to IT departments.


Conclusion

The Revlon S/4HANA case study provides important insight into how implementation failures are covered up.

It almost appears the release of information by Revlon was 1/2 unplanned. And the failure was not presented as a failure, but rather the failure was presented within the context of a ready-made plan to remediate failure. This shows the management as totally in “control of the situation,” however, a more accurate depiction is they have been played for fools by SAP and their consulting partner. We can be quite confident that if we were to cultivate contacts within those that know at Revlon, they would tell us a very different story than that told in the quarterly call. The very amount of the remediation costs combined with the statements indicate that S/4HANA was cutover into production prematurely and that Revlon has had long term problems with S/4HANA.

Revlon said several inconsistent things, first that they lose money because SAP prevented them from fulfilling orders, and then that SAP was not stopping them from performing production. If Revlon is restricted in fulfilling it is impacting production if it isn’t stopping production. Furthermore, an ERP can’t “stop” production. It does not have a body that can turn the production line “off.” Therefore the statement here is misleading. What the ERP system can do is order incorrect amounts of materials, and generally, create havoc in the manufacturing process.

Furthermore, Revlon would naturally be incurring all other types of internal costs. When National Grid failed in its SAP implementation (not S/4HANA), National Grid claimed the following remediation costs in their lawsuit against Wipro.

“The problems were so profound that the cleanup took more than two years to complete with a calculated cost of $585M, more than $150% of the cost of implementation.” – How National Grid’s SAP Implementation Damaged a Company

The investor lawsuit was initiated because some investors felt they had not been informed of the problems with the SAP implementation.

Revlon is unified with SAP in hiding the failure of this S/4HANA implementation from investors. We have added Revlon to our current research into S/4HANA implementations. (scroll down for details)

The Problem: A Lack of Fact-Checking of S/4HANA

There are two fundamental problems around S/4HANA. The first is the exaggeration of S/4HANA, which means that companies that purchased S/4HANA end up getting far less than they were promised. The second is that the SAP consulting companies simply repeat whatever SAP says. This means that on virtually all accounts there is no independent entity that can contradict statements by SAP.

Being Part of the Solution: What to Do About S/4HANA

SAP and the consulting firms rely on providing information without any fact-checking entity to contradict the information they provide. This is how companies end up paying for a database that is exorbitantly priced, exorbitantly expensive to implement and exorbitantly expensive to maintain. When SAP or their consulting firm are asked to explain these discrepancies, we have found that they further lie to the customer/client and often turn the issue around on the account, as we covered in the article How SAP Will Gaslight You When Their Software Does Not Work as Promised.

The Necessity of Fact Checking

We ask a question that anyone working in enterprise software should ask.

Should decisions be made based on sales information from 100% financially biased parties like consulting firms, IT analysts, and vendors to companies that do not specialize in fact-checking?

If the answer is “No,” then perhaps there should be a change to the present approach to IT decision making.

In a market where inaccurate information is commonplace, our conclusion from our research is that software project problems and failures correlate to a lack of fact checking of the claims made by vendors and consulting firms. If you are worried that you don’t have the real story from your current sources, we offer the solution.

Financial Disclosure

Financial Bias Disclosure

Neither this article nor any other article on the Brightwork website is paid for by a software vendor, including Oracle, SAP or their competitors. As part of our commitment to publishing independent, unbiased research; no paid media placements, commissions or incentives of any nature are allowed.

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References

https://www.computerweekly.com/news/252464278/SAP-disruption-leads-to-Revlon-class-action-lawsuit

*https://specialreport.247wallst.com/consumer-products/2019/03/20/whats-really-wrong-with-revlon

https://www.wipro.com/en-US/blogs/pradeep-nair/sap-s4hana-the-core-of-a-digital-business/

*https://www.amazon.com/Software-Wasteland-Application-Centric-Hobbling-Enterprises/dp/1634623169

https://seekingalpha.com/article/4249619-revlons-rev-ceo-debbie-perelman-q4-2018-results-earnings-call-transcript?part=single

http://blog.asug.com/asugs-2019-state-of-the-community-study-reveals-sap-customer-insights-challenges-and-opportunities

https://www.riministreet.com/Documents/Collateral/Nucleus_6-out-of-10-customers-wouldnt-buy-SAP-again_June-2016.pdf